Michigan resumes online gambling push in 2018

Michigan is among the latest states to consider the merits of expanding into online gambling, After failed attempts to regulate online casinos in 2016 and 2017, the issue is back on the radar for 2018.

However, the legislature will face numerous hurdles in crafting a bill that merges state law governing commercial casinos in Detroit with components of existing tribal casino regulations.

Over the start of the year, Rep. Brandt Iden has been working with stakeholders to craft a bill that would appease everyone. He said he hopes the bill can reach the governor in 2018, but that might be a tall order. H 4926 is the current vehicle for online gambling and poker regulation.

The backstory on Michigan online gambling

Michigan first threw its hat into the online gambling arena in April 2016, when State Sen. Mike Kowall introduced SB 889. The bill, titled “The Lawful Internet Gaming Act” would regulate both online poker and casino games within state lines.

The core arguments for passage, as stated in the bill, were to create new revenue streams for the state and to offer consumers and the state protection from offshore gambling sites.

SB 889 moved through the legislative process at a rapid clip. In May, the Michigan Senate Regulatory Reform Committee held an information hearing, where it was revealed that SB 889 was three years in the making.

There were rumblingsthat the legislation would tackle online gambling upon reconvening in November, but with a limited number of session days left the prospect of the Senate passing what was ultimately a nascent and flawed bill seemed bleak.

This despite, assurances from Kowall that there was “plenty of time” in 2016 for SB 889 to push through the various legislative chambers.

In the end, the bill was never brought up for a full Senate vote.

How much revenue could the MI online gambling industry generate?

Under the constituents of the latest draft of SB 889, license holders would have to pay a $200,000 licensing fee at the time the license is issued (a previous draft listed the license fee at $5 million), and $100,000 annually thereafter. The application fee is set at $100,000.

There no longer appears to be a hard cap on the number of licenses available (originally it was eight). License applicants are limited to the state’s commercial casinos and federally recognized tribes which presently operate a Class III casino operation in Michigan.

Given the number of commercial (three) and tribal (20) casinos currently operating in the state, it’s exceedingly likely that a wealth of licenses would be issued. Thus, the issuing of licenses alone could result in a sizable chunk of upfront revenue and recurring for Michigan.

As far as recurring tax revenue from gross gaming revenue, the best means of predicting this figure to turn to the performance of the NJ online gambling industry.

New Jersey makes for a valid comparison point, as its population of 8.9 million rivals that of Michigan’s (9.9 million). In its first year, NJ online gambling generated $122.9 million, spiking to $196.7 million in year three (2016).

Based solely on this, Michigan online gambling operators can expect to gross somewhere in the vicinity of $135 – $140 million in the industry’s first year. At a proposed 10 percent tax rate, this would result in roughly $14 million for state coffers.

In reality, the number could be much higher, as geolocation services, payment processing, and marketing efforts have been improved upon and refined dramatically since 2014. Accounting for this, Michigan’s first year tally from online gambling could be more in line with what New Jersey generated in its third.

Thus, $20 – $22 million in first year tax revenue from online gambling wouldn’t shock. Although, admittedly most of this would come from online casino, as in the absence of an interstate compact, Michigan online poker may struggle to sustain more than one or two thriving sites.

Michigan’s brick and mortar casino industry

Michigan is presently home to three commercial casinos in Detroit (MotorCity Casino, Greektown Casino, and MGM Grand Detroit), and close to two dozen tribal casinos spread throughout the state.

The first tribal compacts were signed in 1993, and by the end of 1996, 17 tribal properties had spouted up.

In November 1996, a public referendum (Proposal E) to enact the Michigan Gaming Control & Revenue Act was passed by voters. The Act enabled the licensing and development of three commercial properties in Detroit.

The Michigan Gaming Control Board was granted authority to license and regulate the new casinos in Detroit, which opened in 1999 and 2000.

Notably, the launch of the MGM Grand Detroit marked the opening of the first luxury casino resort in a major city that wasn’t named Las Vegas, and currently generates the most revenue out of the three commercial properties.

Moving beyond casinos, Michigan also supports other forms of legalized gambling, including the state lottery, and horse racing.

It’s also one of only a few states to have legalized online lottery sales. Early indicators suggest that the state’s online lotto has been an stunning success.

Michigan online poker FAQ

Why is Michigan considering expanded gambling?

The state is in need of money, and online gambling would provide a consistent revenue source. Also, competition from surrounding areas threatens the future prosperity of Michigan’s land-based industry — online gambling expansion is viewed as a vehicle to remain competitive.

Beyond that, lawmakers realize that online gambling is already prevalent in the state, thanks to the presence of black market operations. By legalizing online gambling, the state could curtail black market activity, whilst bringing in substantial tax revenue.

Along the same lines, legal online gambling is seen as a means to provide players with consumer protection benefits that are not offered by offshore sites.

What is the likelihood Michigan passes an online poker bill?

The appetite for legal online gambling in Michigan varies, with commercial casinos appearing to be decidedly neutral on the subject. Tribal factions are not unified with regards to legalizing online wagering within state lines.

And there are fears, however misguided, that online gambling will cannibalize revenue from land-based casinos.

Further complicating matters, crafting a bill that merges existing state law governing commercial casino with a separate regulatory framework for tribes is a difficult legal challenge. In its present form, SB 889 requires tribes to operate online gambling as a commercial company — which raises the issue of tribal sovereignty.

All that said, Kowell and other lawmakers have expressed optimism that any outstanding issues will be resolved. So it’s at least conceivable that Michigan will pass a bill in 2017, although 2018 seems more likely.

How about online casino gambling, will Michigan legalize that too?

The provisions of SB 889 state that Michigan must offer online poker, but is not limited to just poker. This language opens the door for online casinos, and other online gambling activities.

Considering New Jersey generated 86.5 percent of its 2016 online gambling revenue from its online casino rollout, it would surprise if online casino wasn’t a part of of Michigan’s industry.

Who will operate the Michigan online gambling sites?

SB 889 states that only commercial casinos and federally recognized Michigan Indian tribes that presently operate a class III casino in Michigan (other than online gambling) are eligible for licensure.

Will Michigan partner with other states for online poker?

The bill doesn’t appear to limit online poker sites based on a player’s location, so presumably, the door for Michigan to forge an interstate network with another state is open.

Given the performance of the NJ online poker, it’s likely that any mid-sized state will be open to sharing liquidity across state lines, as that should afford operators a much easier path to profitability.

Would I have to live in Michigan to participate at MI online poker sites?

Possibly. Again, there is no clause that explicitly forbids wagers from players not physically present in Michigan, in so long as the “wager is not inconsistent with federal law or the law of the jurisdiction,” and “is conducted under a multijurisdictional agreement.”

What forms of gambling are presently legal in Michigan?

Beyond commercial and tribal gambling, Michigan supports legal horse racing, a state lottery, and online lottery sales. It is also looking into daily fantasy sports.